EXCLUSIVE-U.S. retailer Guitar Center explores debt restructuring -sources

Reuters




By Lauren Hirsch and Jessica DiNapoliJuly 12 (Reuters) - Guitar Center Inc, the largest U.S.
retailer of music instruments and equipment, is looking for ways
to restructure its $1.3 billion debt burden as music lovers move
their shopping online, according to people familiar with the
matter.
    The move makes Guitar Center the latest example of a
brick-and-mortar retailer facing financial distress, as its
stores are relegated to showrooms by consumers looking for
bargains on the internet and in big box retailers such as
Wal-Mart Stores Inc <WMT.N>.
    In addition to Amazon.com Inc <AMZN.O>, musicians can now
buy their instruments online from Sweetwater Sound Inc, as well
as directly from guitar makers themselves, such as Fender
Musical Instruments. [nL1N1JW0WK]
    Guitar Center, majority-owned by private equity firm Ares
Management LP <ARES.N>, has been having conversations with
investment banks and law firms about hiring advisers to help
address its capital structure, with $615 million in secured debt
coming due in 2019, the people said this week.
    The sources asked not to be identified because the company's
plans to cut its debt have not been made public. Ares declined
to comment.
     The musical instrument industry grew 9 percent to $7.1
billion in retail sales over the past five years, but remains
well below its 2005 peak of $7.7 billion, according to data from
The Music Trades magazine.
    The industry's challenges have been compounded as the newest
generation of teens has shifted its focus from guitars to
consoles, smartphones and sports. The electric guitar has been
virtually absent from the Top 20 music charts in the past five
years.
    Based in Westlake Village, California, Guitar Center has
more than 280 stores across the United States. Its sister brand
Music & Arts runs 150 stores focused on band and orchestral
equipment for schools and educators.
    It has sought to draw shoppers into its stores by offering
music lessons, instrument rentals and free workshops.
    Guitar Center began in 1959 as a store selling home organs
in Hollywood. In the 1980s, the company started its Rockwalk on
Sunset Boulevard, a hall of fame that pays homage to musicians
including Alanis Morissette, Aerosmith and Van Halen.  After a
period of explosive growth, it went public in the 1990s.
    Guitar Center's debt is trading at a significant discount to
its face value. Its $325 million in unsecured bonds due in 2020
are trading at about 59 cents on the dollar, according to
Thomson Reuters data.
    The company's $615 million in secured bonds due in 2019 are
trading at about 87 cents on the dollar.
    Credit ratings agency Moody's Investors Service Inc said in
April that it did not expect that Guitar Center will generate
enough free cash flow in the next 12 to 18 months to materially
reduce its debt and improve leverage.
    This would not be the first time Guitar Center would undergo
a debt restructuring. In 2014, Ares, which was the company's
creditor at the time, swapped its debt in the retailer for a
controlling equity stake, cutting the retailer's debt by about
$500 million.

 (Reporting by Lauren Hirsch and Jessica DiNapoli in New York;
editing by Diane Craft)
 ((Jessica.DiNapoli@thomsonreuters.com; 646-223-4678;))

Keywords: GUITARCENTER DEBTRESTRUCTURING/ (EXCLUSIVE)






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